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SEGMENTATION OF THE A‐ AND B‐SHARE CHINESE EQUITY MARKETS
Author(s) -
Fung HungGay,
Lee Wai,
Leung Wai Kin
Publication year - 2000
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2000.tb00738.x
Subject(s) - equity (law) , latent variable , variable pricing , financial economics , stock (firearms) , capital asset pricing model , business , market segmentation , economics , chinese market , econometrics , monetary economics , china , microeconomics , statistics , mechanical engineering , mathematics , political science , law , engineering
In this study we use the latent variable asset pricing model to examine the pricing of A and B shares in the Chinese stock markets. The hypothesis tested is whether markets for the A and the B shares of the same companies are segmented. We document only one latent variable in both A‐ and B‐share markets. However, the latent risk premiums for the A and B shares are only weakly correlated, indicating the two‐tier markets are loosely related. The weak correlation implies the two markets reflect different fundamental forces. Additional analysis demonstrates that the Shanghai market responds to the Shenzhen market rather than the other way around.